First, I started with by calculating our net income from a single day job. (At the time it was me working and Jak at home; more often it’s been the other way around, but either way we’ve been on a single income since late 2008.)

Then I started thinking about what expenses were absolutely necessary. Like, if we suddenly had no income whatsoever, what would we still have to keep buying or paying for? I came up with the following list of Needs:

Rent or Mortgage

Groceries

Electricity

Water/Sewer/Garbage

Natural Gas

Internet

Phone

Health Insurance

Prescriptions

Dentist

Veterinary

Car Insurance

Gas

Car Maintenance

Some of those categories are straightforward, but a few could use further explanation. For example, ‘Phone’ could theoretically mean anything from a local-only landline to dual smartphones with unlimited data. We have a free VOIP phone setup at the house, so I thought if necessary Jak and I could share a single cell phone on a pay-as-you-go plan. (In June I calculated the cheapest option to be $22 per month, including taxes and fees, using a ‘dumb’ LG phone that we already own.)

For some people, ‘Internet’ would be properly a luxury, but since neither Jak nor I can do any work — salaried or freelance — without it, for us it’s a need. ‘Groceries’, for simplicity of recordkeeping, includes all necessary consumables — not just food but also things like dish soap, toilet paper, toothpaste, and pet food.

Gasoline was the one area where I opted not to be draconian right out of the gate. To be strictly accurate, we should keep mileage logs and distinguish between required and discretionary trips … and if it ever seems like we’re overusing the car, that’s what we’ll do. But between frugality and environmental concerns (and, it could be argued, a homebody lifestyle), Jak and I have been pretty good about keeping our driving to a minimum. An employer-paid bus pass is usually a job perk for us; without that, we’d have a Public Transportation budget as well.

After tallying up the Needs, I moved on to Savings. Jak and I agree that maximizing our tax-advantaged savings each year should be a priority, which in our circumstances means:

401(k) (when available, up to the employer match)

IRAs for both Jak and myself

HSA for the whole family

Taking our single net income and subtracting all of the above left us, as of July 2011, with $570 per month. This is what we would allocate to our family’s Wants. The next step was to distribute that discretionary money into ‘accounts’ for each family member. We started with the children.

Jak’s elder daughter graduated last year and moved out over the summer, so we’re no longer financially supporting her. However, we agreed to jointly allot $120 a year — $10 a month — for gifts and other help.

My younger stepdaughter still lives with us half-time. Most of that cost is already wrapped into our Needs — a larger house, utilities, medical, groceries — but that still leaves clothing, restaurant meals, gifts, entertainment, extracurricular activities, and random optional expenses like school yearbooks. I proposed $50 a month for Claire’s discretionary budget; Jak worried that wasn’t enough. We compromised on $60 per month, or $720 a year. (This is for half of her expenses; her mother is responsible for the rest.)

My touchstone was ‘If we suddenly dropped to zero income, would we need to buy this thing anyway?’

Whatever was left over after Needs, Savings, and the kids’ Wants — in this case $500 — Jak and I split. (The precise amount adjusts up or down as income or Needs expenses change, but it’s remained pretty close to that number.) That $250 is ours to spend however we want, no questions asked, no unsolicited opinions expressed.

It’s worth calling out some of the things that are considered optional and so fall under the personal budgets. In every case, my touchstone was ‘If we suddenly dropped to zero income, would we need to buy this thing anyway?’ We aren’t just talking restaurant meals and entertainment, but also such things as:

clothing

beauty products

sports equipment & fees

alcohol

gifts

charity donations

cell phones

electronics

small appliances

kitchen equipment

housewares

furniture

All of the above comes out of our personal $250. (We each get an $11 credit against our monthly cell phone bill — half of the $22 I calculated above.)

The only things not covered in this setup are major random emergencies; those are handled separately. For unplanned medical expenses, we have the Health Savings Account; for everything else, we have savings in a separate emergency fund. So if the water heater suddenly dies or the car transmission fails or someone breaks a leg, we can cover the cost without accruing any debt. This is critical; if we didn’t already have a solid emergency fund we would need to cut our personal budgets back until we had built one up.

The final piece of the puzzle involved assigning responsibility for budgets other than our own. Most of the items on the Needs list are fixed costs; there’s not any discretion involved in paying the mortgage or the electric bill, and things like Internet service and auto insurance only need to be price-checked two or three times a year.

However, groceries is our largest monthly expense after housing, and it involves a whole bunch of decisions on at least a weekly and sometimes daily basis. In our case, we agreed that I would be the sole arbiter of the grocery budget. I do almost all the shopping anyway, because Jak dislikes it … and while I wouldn’t say I love it, I don’t mind it so much. Not coincidentally, I have a lot of practice at being both thrifty and efficient, and I also do all the cooking, so I’m the best person for the job in more ways than one. This doesn’t mean that Jak can’t buy doughnuts on a whim if he wants, just that if he does so without getting my approval first, he risks having to pay for it out of his $250 personal budget instead of Grocery.

And last but perhaps most importantly for us, the kids’ budgets. Previously, a fair percentage of our financial disagreements revolved around spending on entertainment and other luxuries for the kids — with me, unsurprisingly, on the side of ‘less’ and Jak on the side of ‘more’. (In some of my research on stepfamilies a couple years ago I discovered that this was a typical pattern for divorced parents and especially for fathers: for emotional reasons they tend to spend significantly more on their children’s gifts and entertainment than parents who are still married to each other — despite the fact that two households means higher expenses and generally less money to go around.)

Because of this dynamic, I proposed that Jak have full control over the kid’s budgets. I could offer suggestions or opinions, but the decisions would all be his. And if he wanted to spend more than the agreed-upon amount ($720 for Claire or $120 for Michaela), he could — out of his own discretionary budget. (As could I, if I wanted to buy something for either of them that he didn’t agree to.)

So to recap, the system in a nutshell is this:

Calculate one after-tax income

Subtract bare-bones Needs

Subtract priority Savings

Apportion a reasonable amount to cover Wants for each child

Divide the remainder by the number of adults

Assign each decision-heavy budget to a single adult

(The Needs/Savings/Wants trichotomy was influenced by a great many things, but particularly the book All Your Worth: The Ultimate Lifetime Money Plan, by Elizabeth Warren and Amelia Tyagi. However, I took the concept a lot farther than the authors did.)

We also made one other agreement, about how we would handle extra income if we both are working simultaneously: at least 50% of that second paycheck will go automatically into long-term (retirement) savings. The other half will be negotiated when it happens, going into some combination of long-term savings, short-term savings (e.g. for major joint travel expenses), and/or a bump to our individual Wants budgets.

10 responses

Would love to hear how you handle paying for things you do together, like going to a restaurant. Are you splitting the bill based on who had what? My husband and I have a similar system in some ways, but we have a joint budget for stuff we do together. Maybe that only seems simpler.

Amanda, I’ll go into more details in Part Two, but the short answer is yes, we each pay our own way (unless one of us offers to treat the other). Turns out I like the way this works much better than a joint activity budget.

After 11ish years of marriage (and separate accounts), David and I *still* have the wrangle after every dinner/event out: “You’re treating, right?” “No, YOU picked, you pay!”

Happily, this typically resolves fairly amicably, about 20 seconds later, with one or the other of us cracking, picking up the bill, rolling our eyes, and loudly sighing “FINE, I’ll pay. But you’re emptying the cat box tonight,”

This is a great idea, and I’m glad it worked for you, but right now, one “paycheck” for us would be between $850 and $1550 a month, depending on who’s you picked! Even if you go for the higher one, our needs alone will go over on that. I think this idea will be re-explored by me/DH when we are making real money (ie, out of school). Thanks for the breakdown though!

I know, some people will be stuck in such impossibly tight situations that they can’t possibly start from just one income.

But the odds of losing a job are higher when there are two. Or you might graduate and be unable to find higher-paying work. (Not pleasant to imagine, but a true story for an increasing number of college graduates.)

Ideally, y’all would find a way to reduce the cost of your needs — maybe a different housing situation, for example. (Since it sounds like you’re both working and in school, I won’t even suggest seeking side income — you’ve probably got enough to do!)

But even if reducing expenses is not an option right now, and you have to calculate using all of both incomes, the rest of the system could still be useful. I hope it helps, and good luck!

We have been doing this for years (Hello Karawynn by the way- we are semi-related thru Jak :) I never knew you had a blog! I am a Financial Analyst and a Money & Financial Nerd and proud of it. I have advised and agree with this for couples.

We sat down did a household budget, retirement, etc. One thing we did was split the household “stuff” mortgage, electricity, food, etc down the middle ‘dollar wise’ but assigned it to a specific person- thus I always pay electric but he always pays say phone and cable but they equal about the same amount dollar amoutn. We did this so no one person has to sit down and pay a bunch of bills everymonth- plus it helps when you use bill pay. Works great for us since we make about the same. When we didn’t I did it by ratio of income vs expenses. The left over funds are for us to spend as we want.

We do set up a ‘plan’ if a large expense or trip is coming up to ‘each pay/save half’ so we have it when the event comes.
As with every ‘system’ there are issues sometimes…I will save those for later

If you are prone to blisters, then taping your feet in troublesome areas with zinc oxide tape is advisable.
When creating a slogan, aim for the heart by playing up the emotional effect.
An effective boxing fitness weight training technique is the 5-5 triset deadlift-squat-lunge.

Enhance the effect of an elliptical machine as a
24hr fitness trainer, by deciding upon a machine that also capabilities handlebars for a incredibly
effective total human body exercise. One has to wonder how Kenya’s fitness DVD has become such a huge hit
in Japan. table tennis fitness components, table tennis fitness components.